Every diamond is a unique creation of nature, its price determined by a subjective examination of its physical characteristics. To overcome the problem of excessive subjectivity in a growing market, the GIA developed in the late 40’s a set of parameters that all graders should have followed.The parameters were cut, colour, clarity and carat, soon named the “four Cs”. It is by the combination of these parameters that the value of a diamond is determined.
The presence of an objective evaluation of diamonds based solely on their physical characteristics has left very few possibilities for producers and dealers to add value to their products in other ways. Yet in the last decade, with the fall of the De Beers’ monopoly and the end of generic advertisement on diamond goods, the industry developed a series of strategies aimed at increasing diamond value and, even more important, at creating a sort of protected, exclusive market that could cut off potential competitors that offer similar products. Those strategies have been focused on four main areas, often inextricably interlocked: Corporate Social Responsibility (CSR), provenience, branding and traceability.
From the Kimberley Process to positive assurance
When in the late ‘90s news of conflicts in Sierra Leone and Angola being fuelled by diamond production and trade reached the public, the business risked a serious downturn. Customers all over the world were not only concerned with diamond quality and gemological certifications anymore; what really counted for them was staying away from any engagement ring that could even potentially be tainted with blood. We all know the story of how successful the diamond and jewellery industry was in addressing a problem which, in their perspective, was quite small (conflict diamonds were an almost insignificant portion of global diamond production), and not directly related to them, by promoting the creation of the World Diamond Council and the Kimberley Process Certification Scheme. We also know that today many in the business, starting from the highly influential Rapaport, do not consider the KP sufficient to promote an ethic market. But how is that related to the value of the diamonds?
From the consumer’s perspective, the Kimberley Process represents a “negative assurance.” By negative assurance, we mean that a KP certificate simply states that the traded diamonds are not labelled as conflict diamonds. It does not, on the other hand, say anything on possible benefits that workers and local communities should derive from those very same diamonds. In addition, since KP certificates are compulsory for diamonds to enter the legal market, consumers are not asked to make any responsible choice or evaluation when buying them.
With this in mind, diamond producers tried to attract the attention and, hopefully, the wallet of the consumers by proposing a series of “positive assurances.” Positive assurance means making it clear for customers that diamond revenues will be used in part to promote better living conditions for the people and communities involved in the industry, as well as to protect the environment. Corporate social responsibility gave consumers the idea that by choosing a certain product they would have actually made an ethical choice. So, while the KP managed to break the market in (illegal) conflict diamonds and non-conflict diamonds, CSR created discrimination inside the legitimate market by making consumers aware of the effects of their choices. Many jewellery users are now aware of CSR and willing to pay a bit more just to be sure that the diamond they are buying is ethically clean.
Provenience matters
For decades, the 4Cs have constituted the general guidelines for choosing a diamond. Today, there is a 5th C to consider: country of origin, namely Canadian.
This is the presentation run on Maple Leaf Diamonds’ website. The idea is simple: engraving a code number and a maple leaf on Canadian diamonds to guarantee their provenience. Maple Leaf Diamonds are not the first example in this direction; for at least ten year Canadians have been using a laser-engraved polar bear to attest the provenience of the diamonds, which have even received official certification by the Government of North-West Territories.
But is the country of origin so important for the final consumers? The Canadian example says yes. Canadian diamonds are sold at a price 10-15% superior to those coming from other countries. This is almost entirely due to a skilful advertisement campaign, which combines guarantees with glamour. The idea behind a protected designation of origin (PDO) is to make customers identify Canadian Diamonds with high quality and strong ethics, and different points have been used in favour of this thesis. By taking as an example what BHP Billiton says about its signature Canadamark diamonds, we understand that: 1) Canadian mines are located in inaccessible areas inside the Arctic circle, and this means that they are more exclusive and prestigious than other equivalent products; 2) diamonds extracted in Canada are, as an average, better than any other diamond; 3) Canadian laws offer the best standards of protection and social security for employees; 4) Canadians use cutting-edge technology to preserve the environment.
A diamond dealer would definitely say that none of these characteristics is really relevant for making him buy a Canadian diamond at prices above the average. In the end, the fact that a diamond is mined in harsh conditions does not imply that it is more exclusive; CSR and respect of the environment are now a reality for most of the diamond mining companies, from Russia, to Africa to Australia; the average quality of a mine is not necessarily an indicator of how good a single gem is. Yet the Canadian PDO has managed to create a niche of loyalised customers that now spans across the whole North America and would not buy an engagement ring unless it has a polar bear or a maple leaf engraved on it. Even a top US jeweller such as Tiffany was persuaded to make risky investments in Canada, at the controversial Jericho mine project, which provided diamonds for just a couple of years before being shut down.
Brands are more understandable than parameters
While geographical branding presents many interesting characteristics, it is not the only reason why brands are used in the business; even more important is the sense of confidence, quality and prestige that a brand can give.
Let’s face it: understanding diamonds is all but simple for final users. The four Cs are fairly complicated parameters and they all contribute to the final value of the diamond. That is why companies use brands to offer easier specifications when presenting their diamonds, such as their relative quality compared to the total production. Forevermark, as an example, states in its website that its diamonds go beyond the 4Cs, representing the most beautiful 1% of De Beer’s production; to find actual information on the grading of the diamonds one must dig much deeper into the website. The same principle is also applied by retail companies, such as Blue Nile that presents its Signature Diamonds as “the top 1% of all diamonds in the world”.
The practice of branding top-level diamonds has the huge advantage of preserving their exclusivity in spite of large production volumes, while the use of percentages (even if we do not know how accurate they are) allow the customer to give this exclusivity a quantitative number.
Tell me your story
There are also other strategies aimed at improving the value of the diamonds, such as registration numbers that allow the customer to trace back the “history” of the diamond virtually to the day in which it was extracted. Giving customers the possibility to know the story of a certain diamond has a profound effect on their choice to buy it.
The science of psychology is familiar with this kind of behaviour: Paul Bloom, Professor of Psychology at Yale University, has showed in his studies that people are much more attracted by the history of an object rather than its sheer beauty, and as we know marketing has a lot to do with psychology. A diamond with a story is a better diamond; it does not matter if its story is exactly the same as the one of many thousands of other, untraceable, diamonds.
The ugly duckling: synthetic diamonds
And of course a final word must be spent on what has always been conceived as the pariah of diamonds: the synthetics. While mining companies hope to relegate synthetics to industrial application, more than one jeweler has come to the conclusion that synthetic diamonds could become attractive for a certain segment of customers: those people who, despite all kind of reassurances are not yet convinced that issues such as conflict diamonds or the environment have been tackled in the right way. Synthetics (or lab-created diamonds, as they are now called by producers) do not, and probably never will, have enough glamour to damage the business of natural diamonds; yet they are creating themselves a specialized niche in the market that producers such as US-based Gemesis and Chatham are eager to exploit.
Bottom line: reassure, guarantee, trace, simplify
Securing a section of the market is of crucial importance for diamond producers and dealers in an increasingly variegated and competitive environment. As there are not many possibilities of adding value to diamonds by further improving their physical characteristics, operators have decided to push their marketing strategy towards marginal characteristics that, nonetheless, have the possibility to make their product shine above the others. For now the path has been characterised by four complementary strategies: ethical reassurances, guarantees on diamond provenience, traceability and simplification of the parameters that customers need to understand.
Branding is certainly one of the most interesting trends in the contemporary diamond industry but companies should be aware that they cannot push this practice too far, as in the end it’s all about exclusivity. People will keep paying more for a branded diamond as long as it will allow them to distinguish their purchase from the vast majority of the market. Reduce this gap and you will reduce value.
